It is hard not to notice the increasing number of soft law instruments that have been published in recent years, at least in the field of restructuring and insolvency law. Of course, mere issuance does not mean that the relevance and value of such instruments is recognised. Many times, soft law instruments are ignored, merely overlooked, or at best used as a final argument. It is true that the lack of binding obligations, the sometimes unprecise or vague terms of soft law provisions and/or the absence of delegation of authority for the interpretation and implementation of soft law instruments hamper their application in resolving legal questions, as was also pointed out recently by an Australian court. However, these features do not justify a simple disregarding of soft law instruments, as highlighted recently this year by the Grand Court of the Cayman Islands. The latter court, in deciding on a request to approve a court-to-court cross-border insolvency protocol, cited a previous post of ours on the Oxford Business Law Blog and drew on soft law instruments in granting the request.
Soft law instruments in restructuring and insolvency
In our 2019 blog ‘Soft Law Instruments on Restructuring and Insolvency Law: Why They Matter (or Not)’, we interrogated the relevance of such instruments. While focussing on restructuring and insolvency law, we showed that soft law instruments often originate from so-called standard-setting organisations, typically organisations of good repute and expertise or experience, that have developed comprehensive sets of e.g. model laws, recommendations, principles, guidelines to (national) legislators which can assist legislators, practitioners, judges and policy-makers. This includes, for instance, global standard-setters such as the United Nations Commission on International Trade Law (UNCITRAL) Working Group V (Insolvency) and the World Bank, as well as insolvency practitioners’ organisations, such as INSOL International, International Insolvency Institute and INSOL Europe.
The pluriform appearances showcased by soft law instruments—developed by global, regional, local and ad hoc groups—reflects both its strength and weakness. Generally, it risks blurring the actual role that these instruments can have compared to hard law instruments. In our study on soft law instruments, we argued that they have at least three roles: (i) to complement existing hard law, (ii) to be an alternative to hard law, or (iii) to conflict with hard law (or even soft law). This is apparent in the area of restructuring law (an area of particular interest to legislators and standard-setting organisations at the moment), as well as for filling the gaps in the legislative framework relating to cooperation and communication between judges and practitioners in cross-border insolvency cases.
In international insolvency law practice, the use of soft law instruments has been particularly helpful for the purpose of drafting cross-border insolvency protocols. Such protocols have become an increasingly recognized approach to further cross-border cooperation and communication between the involved insolvency practitioners and courts in different jurisdictions. The protocols—as far as they have become publicly available—have referred to and incorporated, for instance, the American Law Institute (ALI) Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases (2001), CoCo Guidelines (2007), the ALI and International Insolvency Institute (ALI-III) Global Guidelines for Court-to-Court Communications in International Insolvency Cases (2012) and the Judicial Insolvency Network Guidelines for Communication and Cooperation between Courts in Cross-Border Matters (JIN Guidelines) (2016).
Entering into cross-border insolvency protocols: how does soft law assist? A case study
In the ongoing restructuring of the LATAM Airlines group, the joint provisional liquidators of four group members pursued the adoption of a cross-border insolvency protocol in the Cayman Islands. This protocol was with a view to enabling direct court-to-court communication between the courts in the US (New York), Chile, Columbia and the Cayman Islands. The approval of a protocol on court-to-court cooperation and communication, an idea which was raised by the Chilean court, was a ‘first’ for the Grand Court of the Cayman Islands, which urged a review of the jurisdictional basis for entering into the protocol.
In a 2018 Cayman Island’s court Practice Direction, it was stipulated that liquidators could enter into cross-border insolvency protocols, with the court’s approval. For that purpose, the Practice Direction recommends that parties consider two specific soft law instruments: the ALI-III Global Guidelines as delivered by Prof. Ian Fletcher and Prof. Bob Wessels and the JIN Guidelines. In line with the Practice Direction, the joint provisional liquidators proposed a protocol that was distilled from the ALI-III Global Guidelines. However, in this case, it was envisaged that the courts themselves would enter into the protocol, with the joint provisional liquidators acting only as facilitators.
In response, Kawaley J of the Grand Court of the Cayman Islands took the opportunity to clarify the legal basis for the court’s jurisdiction to approve this LATAM protocol. The exercise of the court’s power is derived from its inherent jurisdiction, ‘fortified it might be said by the constitutional protections for judicial independence’, to manage its own processes.
In his judgment, Kawaley J considered in particular the importance of soft law instruments to assume its jurisdiction to approve court-to-court cross-border insolvency protocols: ‘The Practice Direction and the ALI/III and JIN Guidelines may be viewed as emerging sources of law which have been described as “soft law instruments”: Gert-Jan Boon and Bob Wessels, “Soft Law Instruments on Restructuring and Insolvency Law: Why They Matter (or Not)”. It is these instruments that most directly provide a jurisdictional basis for approving the Protocol, building on the more substantive common law principle mandating assisting foreign insolvency courts as far as possible and the inherent jurisdiction of the Grand Court to manage its own processes. (…)’.
Kawaley J continued by opining that the ‘particularities of how to advance the efficiency of cross-border insolvency proceedings at the operational case management level should be predominantly grounded in [such] soft law instruments’. This, in his view, would be ‘consistent with both constitutional principles of judicial independence, the more pragmatic principles of modified universalism and the even more functional inherent powers of this Court to protect the efficiency and integrity of its processes’. The judge concluded by suggesting that soft law instruments could be seen as ‘extra-judicial “judge-made” transnational procedural law’.
Nudging a restructuring with soft law instruments
As we pointed out in 2019, it remains challenging to study the impact of soft law instruments, most importantly due to the difficulty of measuring their application. Therefore, the assuredness that the Grand Court of the Cayman Islands displays in referring to soft law for the purpose of assuming jurisdiction and approving the cross-border insolvency protocol is notable. It must be said that this is also explicable on the basis of the common law nature of the court, the absence of any (conflicting) statutory rules, and because the protocol is based on the ALI/III Global Guidelines that were already pre-approved in a 2018 Practice Direction. Nonetheless, the judgment furthers the understanding of when soft law instruments matter and how (to adopt the language of Kawaley J) they can ‘nudge’ actors in insolvency proceedings, including courts, to pursue an effective resolution of cross-border insolvency cases. In all, the judgment is rewarding, both to the authors as well as to the editors of OBLB.
Gert-Jan Boon is Researcher and Lecturer in (international) insolvency law at Leiden University.
Bob Wessels is Emeritus Professor of international insolvency law at Leiden University.